PE investment positions GRAM for additional growth

WINNER: Deal of the Year, $25 million to $150 million

A recapitalization in late 2010 put Grand River Aseptic Manufacturing Inc. on the path to triple-digit annual growth.

By 2017, the Grand Rapids-based contract manufacturer of injectable pharmaceuticals needed more capital to expand production capacity and maintain its growth trajectory.

So the company hired Fairmount Partners, a Philadelphia-based investment bank that specializes in life sciences deals involving similarly sized companies. Fairmount Partners concluded that GRAM had attained substantial value and could attract interest from a sophisticated buyer.

That process culminated in November 2017 when GRAM secured an investment from Chevy Chase, Md.-based private equity firm Arlington Capital Partners, which has a strong background and expertise in the life sciences sector.

Arlington Capital Partners acquired a majority stake in GRAM and provided the capital needed for an expansion that will more than quadruple production capacity. The firm followed the initial deal with a subsequent capital investment in the spring of 2018 that enabled GRAM to increase its expansion plan to include a nearly $60 million new facility.

“That was a significant increase in the scope and scale of our expansion, and Arlington was enthusiastically willing to support that additional expansion,” said GRAM CEO Tom Ross. “We have a fantastic partner with Arlington that is willing to support our growth going forward.”

The Arlington Capital investment in GRAM won the 2018 MiBiz M&A Deal of the Year Award in the category for deals valued between $25 million and $150 million.

Grand River Aseptic Manufacturing

Top executive: Tom Ross, CEO

Annual sales: $24.4 million in 2017, according to Inc. magazine

West Michigan employees: About 190

Business description: Contract pharmaceutical manufacturer Best practices for effective dealmaking: “We had a strong consensus among the board management and shareholder base to strategically expand, and that consensus led to a process in which we hired an outside adviser to give us advice as to the value in the marketplace, and options to unlock that value. The company continued to perform extremely well throughout the capital-raise process, which led to continued enthusiasm from potential investors and a higher valuation for current investors.”

A significant aspect of the deal was Arlington Capital Partners’ “tremendous experience in the pharmaceutical manufacturing space,” said Dale Grogan, a managing partner at Charter Capital Partners in Grand Rapids.

Charter put together the 2010 recapitalization and invested in GRAM.

Arlington Capital Partners’ position as a highly sophisticated investor in the sector gives it a chance to look at plenty of potential investment opportunities, Grogan said. Securing an investment from the private equity firm “is a real tribute to the quality” of GRAM, he said.

“These guys have a very discerning eye when it comes to looking at opportunities,” Grogan said. “They get to see every deal in this space.”

Arlington Capital Partners has more than $2.2 billion in capital under management through four private equity funds.

The firm’s investment in GRAM “validates what we’ve been saying for years,” Grogan said. “There are quality opportunities here (in Michigan) and we are not a flyover state.”

Through the deal’s structure, Arlington Capital Partners took a majority position in GRAM and several existing shareholders cashed out their investments. Other investors were able to rollover their holdings and retain their stakes in the company.

The deal “made a lot of money for a lot of people locally,” Grogan said. “That means there are more opportunities for that capital.”

The Van Andel Institute and Grand Valley State University originally founded GRAM, but the company struggled until December 2010, when a group of investors led by Charter Capital invested $2 million and acquired the company’s assets. As the new company created through the recapitalization grew quickly, it raised additional capital, including $9.8 million in 2014 that included an investment from the Municipal Employees’ Retirement System, the pension fund for Michigan public employees.

Amid high sales growth, the company’s workforce increased as well. In 2011, GRAM had just 16 employees. The company grew to 32 employees a year later and to 137 within five years of the recapitalization.

The strong growth rate has since pushed GRAM’s workforce to about 190, according to Ross.

This year, Inc. magazine ranked GRAM as the seventh-fastest growing company in Michigan. The company ranked 705th nationally in the 2018 Inc. 5000 list of the fastest-growing companies in the U.S., with a three-year compounded annual growth rate of 703 percent and 2017 sales of $24.4 million.

The growth generated high interest in the company as Fairmount Partners scouted for an investor for GRAM. One of the biggest challenges in the deal was sorting through all of the proposals that came in, Ross said.

The number of proposals GRAM received during the process reached double digits, he added.

“We had substantial interest from private equity as well as strategic buyers, and many of those bids were very favorable,” Ross said. “(In) trying to decide what was best for our company, what was best for shareholders, what was best for employees, customers as well as the community, we had to sort through that.”

Arlington Capital stood out from the other bidders because it could provide all of the needed capital, offered expertise and experience with investing in and growing life sciences companies, and committed to expand GRAM in its hometown, according to Ross.

The commitment to Grand Rapids formed an important consideration for GRAM directors and shareholders, Ross said.

“It was crucial in our mind to continue to reinvest in our community and expand upon the success that we’ve achieved,” he said.

As GRAM now works to build and equip its new 60,000-square-foot facility on a site just south of GVSU’s Seidman College of Business, the company remains focused on maintaining high growth rates. GRAM most recently signed a manufacturing agreement to produce generic injectable drugs for SunGen Pharma, a Princeton, N.J.-based specialty pharmaceutical company.